The trend of frontier markets, such as Pakistan, to graduate to emerging markets status, is likely to continue, believes Mobius, with Saudi Arabia tipped to be the next contender. South Korea also has the potential to progress to developed markets, he adds, but is still held back by a number of corporate governance issues.
“Graduating into a developed market means you have to have a big free float and a lot of shares available, and the corporate governance issues are a big problem with South Korea. So, I don’t think that will happen any time soon,” says Mobius,
But the movement is not all one way, he adds. Greece, given its long-running economic troubles, was downgrade from developed to emerging market status a couple of years ago.
“When I recently visited Greece I told them ‘Welcome to emerging markets, it’s a great asset class!’,” Mobius said at a Morningstar conference in London last year.
As things stand, Mobius says the greatest opportunities in developing markets are in the Bric countries of Brazil, Russia, India and China, with South Korea, Taiwan and Indonesia having the potential to do “very well”.
In Latin America, he favours Mexico and Argentina, while he cites Venezuela and Nigeria as the least attractive prospects of all.
Mobius shows nobody is ever too old to learn. In terms of sectors, it has to be all things internet-related, he says. “Internet growth is very rapid and companies in that space are going to do very well, as are those that are consumer-orientated. Per capita incomes are moving up, and anything related to the consumer will be good.”
Looking ahead, smartphones and artificial intelligence will be the largest investment themes in emerging markets investing over the next half-century, says Mobius.
However, he insists that despite the colossal influx of funds moving into passive investing – Moody’s predicts passive products will make up 50% of the US market by 2021, up from 28.5% today – machines will never be able to replace active investing carried out by humans.
“We are seeing the rise of much more active investing. This is because with the growth of exchange-traded funds, active managers like ourselves are going to have to be more active than previously, and do more in terms of corporate governance, active investing and getting companies to really perform,” he says.
“So, that’s a change that’s taking place. We’ve always been active but we are going to be more so going forward.”